Bailout

I just read an article on MSN regarding the big bailout of the financial markets. Let me first say that we are in a big mess - and I have no idea what is the best way to fix it. The government wants to step in a bail out all financial institutions by buying all the bad - nonperforming debt. I have a few thoughts on the matter - coming from someone in the mortgage industry...

2 summers ago stated income loans were all the rage. You would not believe the premium being paid to buy these loans on the street. Which transferred to good money for lenders, account executives and loan officers. The street was HUNGRY for this product. So regular W2 borrowers were convinced that doing a stated income loan was the best for them. They signed documentation that stated their income was one amount when they knew full well that they did not make that amount of money. There is no reason why a regular W2 borrower should do a stated income loan. Why the street was allowing this to take place is way beyond me. Stated income loans were meant for self-employed people - not for someone who just didn't feel like getting a copy of their paystubs and W2s. There were even no doc loans - which meant that you didn't have to prove or even list your income or assets. Who thought that was a good idea???

The other problem was borrower greed and "keeping up with the Jones". Borrowers were talked into buying a house that was way more than they could afford. They could either stretch the truth on their income or get an exotic loan - pick a payment, interest only, or negative amortization just to name a few. These products were developed for serious investors - who would purchase property and pay it off in a few months. Not for the average Joe - who would not understand the payment terms.

I think everyone in the financial market are to blame for the current crisis. And I think the government should have stepped in a long time ago. But as I read more about the plan that has been submitted to Congress - the less I agree with some of the measures they are pushing. They want to stop foreclosures and give money to homeowners facing foreclosure. I have a serious problem with this. If a borrower is in a foreclosure situation because they have lost their job, have health issues, etc. - that is one thing - and I think these individuals should be helped. But I do not think the government should step in and help people who knowingly lied on their loan applications regarding their income. Nor should the government help those who simply bit off more than they could chew. If you make $30,000 a year - why in the world did you think you could afford a $250,000 house? Shame on the financial industry for creating this loan - but the borrower should have to take responsibility as well.

I know that mortgages are tricky. I audit files and know there are a million documents that are signed at closing. But it is hard for me to believe that someone would just sign everything and not read or verify a single thing. Everyone needs to take responsibility - including the borrowers.

If there is one thing people could learn from this - it is to read EVERYTHING. Ask questions. If you feel pressured, walk away. This goes for buying a house, a car, a computer, etc. And remember that old saying, "if it is too good to be true....."